2006 (8) TMI 69 - AT - Central Excise

No reversal of attributable Modvat/Cenvat credit where inputs used in destroyed insured goods receive remission excluding excise duty

GRASIM INDUSTRIES Versus COMMISSIONER OF CENTRAL EXCISE, INDORE

CESTAT, New Delhi held that when inputs for which credit was availed are used to manufacture final goods that are later destroyed by fire and the loss is ... Cenvat/Modvat - Demand for reversal of input credit allowed, which is used for manufacture of final goods - Goods destroyed in fire - When the inputs on which credit has been availed are used for the manufacture of final products and if such final products are destroyed due to fire and such loss of finished goods has been adequately compensated by the Insurance (minus excise duty) is the attributable modvat credit (on such inputs) be reversed, when remission of duty is granted on the finished goods destroyed in fire/accident - HELD THAT:- We find that reading of Rule 49 of Central Excise Rules, 1944 and Rule 21 of Central Excise Rules, 2002 which provides for remission of duty in respect of goods lost or destroyed by natural cause or by unavoidable accidents or in case goods become unfit for consumption or for marketing at any time before removal does not provide reversal of credit in respect of inputs used in the manufacture of such goods. The Modvat rules prohibits the credit of duty paid in respect of the inputs which are used in the manufacture of exempted goods or which are chargeable to nil rate of duty. Therefore, we approve the view of the Tribunal taken in the case of Inalsa Ltd. [1996 (10) TMI 229 - CEGAT, NEW DELHI] in this regard. The issue to the Larger Bench is answered in the above terms and the matter be placed before the Regular Bench. Issues:1. Reversal of modvat credit on inputs used in manufacturing final products destroyed by fire when remission of duty is granted on the finished goods.Analysis:The judgment addresses the issue of whether modvat credit on inputs used in manufacturing final products destroyed by fire should be reversed when remission of duty is granted on the finished goods. The Tribunal referred to conflicting views in previous cases and highlighted the importance of Rule 49 of the Central Excise Rules, 1944, and Rule 21 of the Central Excise Rules, 2002, which provide for remission of duty on goods lost or destroyed by natural causes or unavoidable accidents.In the case of Mafatlal Industries, the Tribunal held that modvat credit on inputs must be reversed when finished goods are destroyed in fire and duty remission is granted. However, in the case of Electrolux Kelvinator Ltd., the Tribunal ruled that remission of duty does not necessitate the reversal of modvat credit on inputs used in manufacturing goods destroyed by fire. The judgment also referred to the decision in Inalsa Ltd. v. CCE, New Delhi, where it was held that remission of duty does not equate to a general exemption from duty, and therefore, the credit on inputs need not be reversed.The Tribunal emphasized that remission of duty on finished goods destroyed by fire does not entitle a manufacturer to credit of duty on inputs used in manufacturing those goods. It was noted that the rules governing remission of duty do not specify the reversal of credit on inputs used in such goods. The judgment concluded that the credit of duty paid on inputs for goods destroyed by natural causes or unavoidable accidents should not be reversed, aligning with the decision in the case of Inalsa Ltd.In light of the above analysis, the Tribunal approved the view taken in the case of Inalsa Ltd. and rejected the stance in the case of Mafatlal Industries. The judgment clarified that remission of duty does not automatically trigger the reversal of modvat credit on inputs used in manufacturing goods destroyed by fire. The issue was answered in favor of maintaining the modvat credit, and the matter was referred back to the Regular Bench for further proceedings.